Business

[Debriefing] North Korea’s smuggled coal

Aug 20,2018

The Belize-registered Jin Long is docked at the Port of Pohang, North Gyeongsang, on Aug. 7 next to a pile of coal. According to the Korea Customs Service, seven ships, including the Jin Long, were used to bring North Korean coal into South Korea. [YONHAP]

The South Korean customs agency revealed on Aug. 10 that private companies smuggled North Korean coal and iron into South Korea from April to October 2017 in violation of United Nations sanctions that prohibit member states from purchasing North Korean products and South Korea’s own regulations about dealing with the North.

This puts Seoul in a delicate position with its main ally, the United States, which is demanding that it continue to impose “maximum pressure” on Pyongyang to get it to denuclearize. Purchases of North Korean coal and iron are considered a major shirking of that responsibility - and raises the possibility that Seoul was turning a blind eye to the smuggling.

This week’s debriefing will describe how North Korean coal and iron was illicitly brought into the South and how South Korean authorities - including the Korea Customs Service - are handling the case.

Q. What has been smuggled into the South and how did it get past customs?

Korea Customs Service found seven cases of illegal imports of North Korean coal and iron during the seven-month period.

According to investigation results revealed by the agency, about 35,000 tons of North Korean coal and pig iron were imported into the South, worth some 6.6 billion won ($5.84 million). The smuggling was done by three individuals: two coal importers and one person who ran a shipping company.

The traders transshipped North Korean coal and iron to South Korean ports through various Russian ports. To get the shipments past customs, they claimed the origin of the shipments as Russia and changed ships at Russian ports.

For instance, the smugglers shipped about 4,100 tons of coal from Songrim in North Korea to Nakhodka in Russia on April 1 on the K.Morning, a North Korean cargo ship. In Nakhodka, they transferred the cargo to the Jin Ao, which is registered in Sierra Leon, and changed its country of origin to Russia. The coal was delivered to Dangjin, South Chungcheong, on April 25.

Q. Why is this illegal?

As mentioned earlier, the shipments violate both South Korean sanctions on North Korea as well as United Nations sanctions.

The South Korean government initiated the so-called May 24 measures in 2010, prohibiting South Korean firms and individuals from having any economic exchanges with the North. They are also banned from providing any support or assistance to the North as well as making any investments there without the consent of the South Korean government.

The measures were implemented following the sinking of the naval vessel Cheonan, which happened in March that year, killing 46 South Korean seamen. South Korean authorities have blamed North Korea for the event, although North Korea denies responsibility.

UN Security Council Resolution 2371 went into effect in August 2017, prohibiting the purchase of North Korean natural resources, including coal and iron, at the height of Pyongyang’s missile provocations.

Out of the seven ships that smuggled North Korean materials into the South, three are considered to have violated the May 24 measures, while the remaining four - the Panama-registered Sky Angel, Sierra Leone-registered Rich Glory and the Belize-registered Shining Rich and Jin Long - entered South Korean ports loaded with North Korean coal after the UN resolution went into effect.

Q. How was the smuggling revealed?

A report by a panel of UN experts in June indicated that North Korean coal shipments came into South Korea through Russia. The Voice of America reported in mid-July, citing the panel report, that North Korean coal was shipped through Russia to South Korea and possibly to a third country.

The Korea Customs Service had already received some tips about such cases from the United States before the UN report and launched its own investigation last October, the agency said.

The customs agency explained that it was difficult to confirm the origin of the coal and iron shipments due to a lack of evidence and forging of documents by the smugglers.

It was unable to track the cash flow involved in the incidents as the culprits made payments with goods rather than cash, the customs agency explained.

But one of the suspects came forward and told the investigators about the origin of the shipments and how they dodged customs.

Q. Who has been punished so far in the case?

The customs office handed the case to the prosecutors’ office and recommended the three individuals be indicted for importing North Korean coal and forging documents.

Korea South-East Power, a subsidiary of the state-run Korea Electric Power Corporation, also came under fire after it was discovered that it used the smuggled coal to run its power plants. But South Korean authorities determined that the company didn’t know the coal was North Korean and decided not to press criminal charges, although the customs agency did admit that the energy company was able to purchase the coal at a much cheaper price than from other suppliers.

Other companies that bought and used North Korean coal were not revealed by the customs agency.

The four ships that delivered North Korean imports after the implementation of the UN sanctions were banned from entering South Korean ports, according to Seoul’s Foreign Ministry.

The remaining three ships that brought in North Korean coal before the comprehensive coal ban by the UN Security Council will be subject to punishment by South Korean authorities, which has yet to be determined.

Seoul also briefed the UN Security Council about the findings, which will determine its own punitive measures on the ships and companies involved, including listing them on the council’s sanctions list.

Q. Were there any other cases of smuggling before or after the April to October 2017 period?

No cases have been officially confirmed by authorities, but media reports suggest there have been other North Korean coal shipments to South Korea.

For instance, there is speculation that the Rich Glory docked at various South Korean ports as many as 16 times since last October. The Panama-registered Sky Angel came into Korea six times during the same period, the latest time being on June 13 when it reportedly visited the Port of Ulsan. It’s not verified what the vessels were carrying. The Voice of America raised similar allegations, citing Marine Traffic, which tracks vessel positions.

Officials from the customs agency explained that they didn’t arbitrarily set a specific time frame - April to October 2017 - but that is when the cases they were able to prove took place. When asked about the possibility of such smuggling taking place before and after the time period they provided, an official from the agency said it was impossible to confirm.

The big question remains whether the South Korean government was aware of the situation and didn’t do anything to address the issue - which some experts say is highly likely.

Q. What may come next?

It’s possible the U.S. government may initiate a so-called secondary boycott.

Secondary boycotts penalize any entities, often financial institutions, indirectly involved in illegal transactions with North Korea. These entities are barred from doing any business with customers or partners in the United States. A bank in Hong Kong in the past nearly went bankrupt after it was slapped with a secondary boycott by the U.S. government.

Kyongnam Bank, a commercial bank, is one of the financial institutions in South Korea that issued letters of credit to the importers, according to recent reports, which may put it in line for a secondary boycott along with at least one more bank.

Many South Korean experts, including top officials of the Foreign Ministry, think such measures are unlikely.

But in an interview with the Voice of America on Aug. 14, William Brown, an adjunct professor from Georgetown University, said a secondary boycott on the South Korean banks is possible if the U.S. government finds that the banks “failed to fulfill its legal obligation and responsibility intentionally.”

While the next move by the U.S. government is still uncertain, the fear of a secondary boycott on those banks is in the air in South Korea with some people going as far as mulling over whether to withdraw their savings from those banks.